Apple beats world record in quarterly profits

Apple scored a new world record in quarterly profits, thanks in large part to the iPhone 6.
CNET

Apple now holds the world record in corporate profitability.

On Tuesday, the iPhone maker reported December quarter earnings of $18 billion, or $3.06 a share, up from $13.1 billion, or $2.07 a share, a year earlier. Analysts had been looking for earnings of $2.60 a share.

The earnings for last quarter -- Apple's first fiscal quarter of 2015 -- set a world record for quarterly profits for public companies, according to an analyst for Standard & Poor's. The previous record holder was ExxonMobil, which earned $15.9 billion in the second quarter of 2012.

Apple's surge in profits was due in large part to the 74.5 million iPhones sold during the period, which was substantially higher than the 66.5 million that analysts in Fortune had forecast and the 51 million sold in the year-ago quarter. Last quarter marked the first full one in which Apple's big-screened iPhone 6 and iPhone 6 Plus were available to mobile customers.

Apple was late to the big-screened smartphone game in comparison with Samsung and other mobile phone makers. The company last upped the screen size of the iPhone from 3.5 inches to 4 inches with the iPhone 5 in 2012. But that wasn't enough. As consumers continued to crave phones with larger displays, Apple was shedding sales and market share to its Android competition. Apple finally got wise to consumer demand by introducing the larger iPhones last September.

"They closed the one feature gap that they had, namely a larger screen, and blew the doors off on revenue and earnings," Gartner analyst Van Baker said.

But the record quarterly profits were aided by other factors.

The holiday quarter is typically the strongest quarter of the year, not just for Apple but for most companies. Apple also witnessed a surge in sales in China with revenue of $16.1 billion for the fiscal first quarter. Apple became the biggest smartphone vendor by shipped units in China for the first time ever during the last quarter, according to research firm Canalys. The company shot to the No. 1 position by surpassing Chinese vendor Xiaomi, in second place, and Samsung, in third place.

Apple also made a savvy move by tweaking the storage capacity of its new iPhones. The entry level iPhone 6 and 6 Plus handsets offer 16GB in storage, prompting consumers to opt for the higher-priced 64GB and 128GB models. That boosted the average selling price of the iPhone to $687, up from $603 in the September 2014 quarter, according to Piper Jaffray analyst Gene Munster.

The surge in iPhone sales more than offset the decline in iPad demand. iPad unit sales fell by 18 percent to 21.4 million last quarter. The iPad's share of the tablet market has dwindled as more low-cost Android tablets have flooded the market. Also, tablet sales in general are down, as more people are opting for big-screened smartphones and choosing to hold onto their existing tablets much longer.

Apple's next big product, the Apple Watch, is scheduled to debut in April. Even though Apple's smartwatch will be available in a variety of styles, sizes and prices, only time will tell if it's a hit. The smartwatch market is still growing and has yet to truly catch on with consumers.